European Union rejects Theresa May's calls for a comprehensive free trade deal in negotiating guidelines published on Wednesday.

The six-page document says only a limited Canada-style free trade deal is possible as long as the UK government sticks to its current Brexit redlines.

The EU wants to continue tariff-free trade on goods but will not give UK banks special access to the single market.

"A pick and mix approach for a non-member state is out of the question," says European Council President Donald Tusk.

The guidelines were leaked to Business Insider shortly before being published.

LONDON — The European Union has rejected Theresa May's call for a comprehensive trade deal and instead begin work on a more limited Canada-style deal in draft negotiating guidelines published on Wednesday afternoon.

The document — which the European Commission published this afternoon after it was leaked to publications including Business Insider — states that only a basic free trade agreement is available to the UK as long as Prime Minister May's government sticks to its current red lines of leaving the single market and customs union.

"Being outside the Customs Union and the Single Market will inevitably lead to frictions," the document says.

"Divergence in external tariffs and internal rules as well as absence of common institutions and a shared legal system, necessitates checks and controls to uphold the integrity of the EU Single Market as well as of the UK market."

'Negative economic consequences'

It adds: "This unfortunately will have negative economic consequences."

European Council President, Donald Tusk, said the guidelines should "come as no surprise" to the UK government.

"It should come as no surprise that the only remaining possible model is a free trade agreement. I hope it's ambitious and we'll do our best. But it will only be a trade agreement," he said in a press conference.

"This will be the first free trade agreement in history where we loosen economic ties, not strengthen them. This is the essence of Brexit."

He added: "A pick and mix approach for a non-member state is out of the question. We are not going to sacrifice these principles. This is not in our interest."

A spokesperson for Prime Minister May said: "We look forward to seeing the final guidelines when they are published and hope they provide the flexibility [the UK is seeking]."

'Short and sweet'

MPs and business leaders have warned the UK government that a Canada-style free trade deal would not be suitable for post-Brexit Britain, as services are not included. Services account for around 80% of the UK economy.

The guidelines formally rule out special access to the single market for UK financial services after Brexit, following May's admission last week that privileged access would not be possible.

This is because: "The U.K. will become a third country and the Union and the UK will no longer share a common regulatory, supervisory, enforcement and judiciary framework."

The six-page document is "short and sweet" and designed to encourage the UK government to "make decisions" in what it wants from Brexit, a well-placed Brussels source told BI.

The document does contain some positive news for the UK side on the subject of trade. It outlines the EU's desire to maintain tariff and quota-free trade with the UK on goods.

Sam Lowe, trade spokesperson at the Centre for European Reform, pointed out that this is a "standard offer" in any EU trade agreement. "They love zero tariffs in goods, because they sell a lot of cars," he told Bloomberg.

The draft guidelines also make clear that the EU is prepared to allow the UK time to shift its Brexit red lines.

"The above speech reflects the level of rights and obligations compatible with the positions stated by the UK. If these positions were to evolve, the Union will be prepared to reconsider its offer ..." the document will say.

It repeats previous warnings that a transition period cannot be agreed until all the withdrawal issues are finalised. "Negotiations can only progress as long as all commitments undertaken so far are respected in full."